The Economic Stimulus bill that has been debated among lawmakers for the last few weeks was finally approved by both the House and the Senate on Friday.  The bill is now on its way to President Obama’s desk, where he is expected to sign Tuesday.  The final product ended up being a $787 billion bill, with about a third of that money coming in the form of tax cuts and about two-thirds of the funds used in spending projects meant to give the sluggish economy an immediate boost.  The question will be whether that spending can be geared to projects that create jobs and stimulate growth.

It’s no secret that a slowdown in consumer spending has contributed greatly to this slowdown.  I posted in this blog last week about how the savings rate in the U.S. is as high as it’s been in years.  From a personal responsibility standpoint, this is a great sign.  People are worried about the security of their jobs and are putting a little money away just in case the unexpected happens.  But from an economic standpoint, the savings rate is terrible news.

This is not a uniquely American problem right now.  Recently the government in Finland launched a campaign encouraging its citizens to start spending instead of saving with the message, “Don’t feed the recession.” Earlier last year, taxpayers in the US received a stimulus check in hopes that they would go out and spend the money.  Most people however, feeling like they needed the money for basic everyday needs more than vacations or home electronics, used the funds to replenish savings or pay down debt.

The good news about more consumer savings is that as banks receive these increased customer deposits, they may feel more comfortable beginning to lend again.  The Finnish government is not alone in wishing consumers would start spending again.  Part of a healthy economy, however, is a healthy foundation of savings and cash reserves for American families.  The savings base in this country has been insufficient for years and debt is a growing problem.  The average family with credit card debt today spends about 20% of their income each month for interest related to that debt.  A stronger savings base will hopefully lead to less debt and spending in areas that are more productive for the economy as a whole.

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Tags: consumer spending and savings, economic stimulus bill, job security, President Obama, stimulus check

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